Why Polygon Is So Bullish on Institutional Adoption, Tokenization

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a look at today's prices Bitcoin trading on my screen well it's below 27 000 26 797. it's off a little under one percent on a trailing 24-hour basis trailing seven days down nearly five percent four point eight eight percent on my screen down right now trailing seven days ethereum on my screen trading at one thousand seven hundred and ninety seven trailing 24 hours it's off about oh about one and a third percent trailing seven days off four percent uh let's talk about polygon Matic while we've got Colin here uh polygon of course is the name of the projectmatic the symbol it trades under the price right now on my screen trading at around 85 cents uh it's up on a trailing 24-hour basis about one and a quarter percent I'm sorry call it one and a half percent jumping on the screen right now uh and in keeping with the broader Trend it's off about three percent on a trailing seven day basis Colin lots to talk about here in terms of the broader framework for what you guys do at polygon the name says it right on the tin Global head of institutional Capital at polygon talk a little bit about what your role is and for people who may not already know we've talked about polygon on this show before but talk about what you guys do uh I am more than happy to Ash thank you so much um so let me start I think with for for the help of the viewers what polygon really is what the mission is what the focus is so polygon was really created by the founders as a way to enable cheaper and faster ethereum there was this idea that eventually ethereum could become a global settlement layer whereby it has by far the highest level of security and decentralization think of the idea that they have over 500 000 validators globally it's probably more like 600 000 or something like that at this point and then they have the highest amount of decentralization those those are kind of two core tenants for the for the really crypto native ecosystem and a focus for a lot of the people in this community and so the idea is that if ethereum only creates a block every 12 to 13 seconds that's a little long for a lot of use cases and the gas fees tend to spike when usage becomes heavy on the network so how do you get around these problems so really polygon Founders come along and say okay we're going to really focus on scaling ethereum like allowing it to be the Bedrock for the next call it billion users because everybody that works on this side of the industry has such a great belief in the technology that we believe ultimately it provides a lot of value for all eight billion people in the world and so we're going to distill that we're going to get a little bit more focused on that my aspect in terms of institutional capital would be how does this technology enable call it like the large asset managers how does it enable the banks how does it enable the exchanges to have a more efficient cost of capital increase their revenue or de-risk their institutions and and for these folks this is an existential question because at the Goldman Sachs JP Morgan you can think of all the largest asset managers in the world it is a very competitive landscape in terms of customer acquisition and cost to service customers as well as the idea behind how do you Garner additional Revenue expansion in an industry that has evolved over the course of of decades let me jump in there go ahead please you said so much and I want to make sure uh that everyone's following along so this essentially is a scaling solution there are other scaling Solutions out there polygon being one of the most popular and it's all about cost congestion and speed these are the challenges that people find on the ethereum network this is a solution for that as you mentioned institutional adoption and it's interesting because in the last oh I don't know six to 12 months I've got a list here of all the folks who have announced polygon projects I mean it's Deutsche Bank KKR JPMorgan HSBC this is really when we talk about the the big Banks Trad fi uh this really is kind of a who's who there let's talk about it I know some of these are smaller pilot projects but let's talk about the broad big picture of what these folks see at these big banks at these large financial institutions what they see in polygon and what the expectation they have in terms of the functionality that they're going to gain from a partnership yeah actually that was a perfect segue so I I tend to think about adoption in three verticals along three lines so so those would be increased Revenue increased cost savings and de-risking if you look at Hamilton Lane uh almost a trillion dollar private Equity entity and the idea that they tokenized their Flagship Equity Fund direct Equity Fund on polygon the reason why Hamilton Lane would do something like that is because it shifts the mix of who can actually invest in their fund and It ultimately broadens their distribution pipeline hey and we're talking about some of the sort of the technical advantage of this let's explain exactly what it is that they do uh in terms of the functionality of the projects what's the the sort of actual mechanics of what polygon it Rose role is in their financial services that they're offering so I'm gonna say if I understand your question correctly polygon would be the infrastructure layer that would that would represent a piece of their Fund in a tokenized form that can trade 24 7 and ultimately allow the customer or the buyer to borrow against an otherwise potentially illiquid holding yeah yeah no I think that says it perfectly because I think people when they hear things like wow cost savings and if they don't understand what the actual goal is and what the project is actually doing yes 100 from our perspective if you think of polygon's Mission as to really serve communities like initially it really started by focusing having a laser focus on the developer Community like how do we enable developers to get access to cheap and fast ethereum we now evolve into okay how do we serve customers of Hamilton Lane um to allow them access to products for which they previously didn't have access so think of the idea of a mid-teens yielding investment instrument investing in private equity where prior to tokenization the only people with access would be qualified purchasers uh call it like five million dollars or more in investable assets through tokenization the mix shifts and we like to think of it as in terms of democratization of assets to individuals that could potentially be accredited investors and the minimum goes down to a floor of ten thousand dollars so it broadens the access to these previously inaccessible Vehicles so think you have to be a fairly wealthy person prior to tokenization in order to even have access to some of the best Minds investing Minds in the world the best funds with the highest returns and now you and I well I don't know your situation but now now I can actually afford to participate in this and and think of it as you know it's a flywheel right like how do how do well feel well wealthier people expand their well-being they have access to these vehicles and so from polygons perspective we're very happy to be able to enable this process by which now normal folks so to speak or accredited investors uh can get access to these vehicles that are that are you know very high return vehicles what does this do for Hamilton Lane why would why would adoption occur on the institutional end because at the end of the day like this only happens if the institutions really want to adopt so if if you think about it this is a way for Hamilton Lane and their peers to access call it the mass affluent people with one million to three million dollars um in investable assets to gain access to this new asset class for which they really didn't have any prior exposure if you want to put it to jump in here go ahead please walk through this particularly for people who have engineering backgrounds who don't have backgrounds uh thinking about private Equity so what we're talking about here is effectively being able to lower the ceiling or the floor uh that brings people into these assets classes uh private Equity obviously uh generally to invest you had to have a lot of money I know you're saying one to three million that probably sounds like a lot of money to folks and it is but compared to the type of individuals who were investing in this uh large family offices Pension funds and very high net worth individuals essentially what you're saying is you're attempting to bring down those costs uh by uh essentially tokenizing uh digitizing these types of assets so that they the transaction fees are lower and of course some of the ancillary benefits you mentioned there earlier uh trading uh in basically the ability to fractionalize these assets at a much greater ratio and also uh lower transaction costs and 365 24 7 trading obviously these are tremendous tremendous differences from a relatively illiquid asset class where we are today at least that's the case for private Equity as I understand it yeah and I love that you you touched on multiple points that I could do a deep dive into probably like indefinitely like literally forever and thank you so much for for stopping me because these are important to unpack so some of these products and if you think of the the ability to borrow against something that is an illiquid asset or previously a liquid asset like that is a solution for which there was no prior solution and you're doing this all by the way on chain without going into a bank without speaking with somebody live like this is an order of magnitude greater value proposition for for people than has ever existed and then you know blockchain is really bringing those ideas to life and it's all it's all happening you know really starting now with with ideas like those that we're talking to so yes and and just to clarify if you're modeling the growth and ultra high net worth of individuals you think of mass affluent as like one to three million but the real definition of an accredited investor is actually much lower than that it's like you know you have a a salary of 250 000 a year or you have a million dollars in investable assets outside of your home so it's actually not you know the minimum is not one to three million these are the criteria we should say for the United States and obviously it differs by different jurisdictions yes that that's absolutely correct that's it that's a great clear clarification so the idea broadly speaking is to bring these products to a much broader cross-section of the population than previously had access and the advantage to the fund issuer or the entity like they call it the Hamilton Lanes of the world is that now they have access to this new group which essentially has a zero percent allocation to their products and they can get to a place where maybe they have a more like pension fund style allocation where it's like 25 percent of a diversified portfolio so it really broadens the the reach of the institutions in terms of access to potential clients um in a significant way and that's why you're going to see adoption so let's talk about some of the other uh folks that we mentioned here some of the other large financial institutions uh that we've mentioned here uh looks like let's see KKR obviously is tokenized to fund bny melon uh Fidelity I mean these are very large financial institutions talk about some of the use cases there yeah so I I will speak largely to the use cases that have gone on polygon because I don't want to speak for for other folks you could definitely have them uh have them on your show um but you could think of the idea that KKR was newly early mover right they tokenized via securitize uh on Avalanche and it was it was a great signal to the market that now is the time for the tier one Brands to adopt the new technology and so for us the the first private Equity chain that came on in our first private Equity Fund that came on in size for us was Hamilton Lane that was a couple months ago but you could think of the idea that Franklin Templeton announced recently that they tokenized their money Mark money market fund on polygon right they actually had a big announcement at consensus um you know spoke on CNBC there was a lot of there was a lot of awareness built around it what this does for them is it allows them to save significantly on the cost side so so for instance like even in terms of the potential to save just within the transfer agent infrastructure yes yes and at some point we'll get too Technical and for for a broader audience I I probably shouldn't I shouldn't get into that we should probably take that offline but broadly speaking these are the these are the the actual uh sort of uh mechanics of how the back office uh gets done in terms of transfer in terms of a whole series of different uh functions that have to be done digitization simplifies it that's the short answer yes and you could think of the idea if you want to think in terms of very concrete terms multiple individuals actually manually moving things around on spreadsheets and that still happens to a large degree in the Global Financial infrastructure blockchain is a solution to a lot of aspects of very clunky infrastructure that has been been built up over decades and to some degree a lot of it can be replaced with a much simpler solution more like one stop one-click solution yeah and some of those spreadsheet Solutions were you know cobbled together with a combination of a back-end Cobalt moving physical certificates uh which happened uh within my lifetime I certainly remember working at uh at BB T and having people move physical certificates back and forth this is some of the Legacy uh not the necessarily the infrastructure that's not still happening at a great level today but some of the the clergy Solutions the process flows around this uh still have that Legacy infrastructure uh backing them and driving uh some of those processes yeah absolutely so it I don't think for me you said it takes a great leap to understand that there is a significant cost savings potential for bringing things on chain I think that those are actually good examples yeah and and let's talk about some of the other advantages here we mentioned earlier uh 24x7 365 trading fractionalization the capacity to create essentially synthetic uh Securities I mean there's just a whole lot of opportunity or some risk as well which we'll talk about in just a second but also a lot of opportunity a lot of opportunity that that's the Grand Vision for for this stuff right so if I were to try to paint a picture succinctly of the vision for the future it would look like all assets in one menu so say we have four assets right we have the Hamilton Lane private Equity Fund we have the Franklin Templeton money market fund we have a a fractional ownership of my house and we have uh call it stocks and bonds and that's all in one place uh it can all be potentially borrowed against in defy it all trades 24 7. at a lower cost than these vehicles would be presented to investors previously that I I would call it for me that's a Holy Grail solution and relative to what's happening currently I think it's an order of magnitude better solution than than really what we have now I think it offers a lot of choice to investors for which they really didn't have prior choice and I should also include by the way commercial real estate assets and things like that of that I think that's that's something interesting that's coming down the pipe think about the idea that if you if you held commercial real estate assets in its current form it's highly illiquid in the future you hold it on chain you can fractionalize it and ultimately borrow against it in a defy Market that that to me is is something that that's very very very cool um that's probably not you know in the too far future for all of us Colin let's talk about some of the risks I'm sure that your clients and some future potential Partnerships have these questions about risk obviously we reported on them a great deal on this show and Elsewhere on real Vision crypto uh talking here about security flaws uh leverage pegs breaking I mean all kinds of stuff has gone wrong in the D5 space and in crypto more generally what are some of the safeguards that you guys take how do you think about it and what do you think the current status of risk is in the polygon Matic ecosystem yeah that's a great question for us because polygon is Security First like that that is the bottom line for us when you think of an Institutional adoption one of the major reasons why you haven't seen it to a significant degree as of yet are the challenges around security and for us ZK technology or zero knowledge technology actually solves for that really for the first time let's explain that to people who may not know uh what it is I should say I've had Sylvia McCallie on the show who's the creator of zero knowledge proofs I mean the actual pen and paper zero knowledge proofs back in the 1980s and it's something that I find fascinating talk a little bit about ZK and the role it plays in polygon fascinating because For the First Time what it allows you to do is prove that you know something without actually having to walk through the steps and so really what you're doing is submitting a proof so if you think about uh R zero zero knowledge technology ZK VM or zero knowledge ethereum virtual machine what you're really doing is submitting proofs back to the to the ethereum main chain and so you get that beautiful very secure settlement uh and decentralization the security of ethereum and the decentralization without the risk traditionally associated with a bridge hack and and that's in terms of risks that's what I would primarily focus on there's a lot of risk I mean we could we could enumerate those risks like all day I think the most for people who may not know Bridge hacks uh are these bridges are Technologies essentially that uh bridge between different chains uh and they've been notorious for their security vulnerabilities we've talked about a number of them here uh on this show and the idea uh behind polygon and other scaling Technologies is to adapt to eliminate the bridge hack as a possible vector by eliminating Bridges essentially yes and Ash just to keep in mind for everybody else like this is Cutting Edge technology that was literally deployed in the past couple of months like the the world really thought this would be happening like five to ten years from now I think it's been very very shocking that it has come out as soon as it has polygon actually spent a billion dollars in order to bring this technology in-house to create that best to breed solution so for us when we discuss Bridge risk if you're thinking about sending billions of dollars or trillions of dollars annually over blockchain rails it needs to be incredibly incredibly secure and prior to zero to zero knowledge technology I would argue it just didn't have the level of security needed so so so what this technology does I think for us really for the first time is it eliminates uh that that risk of a bridge hack which to me is the most significant risk in terms of adoption that that's what all of our Partners or users on the institutional side I think would be most focused on and and so finally we're extremely extremely excited to provide a solution that I think if you asked vitalik buterin what what would be the Holy Grail of scaling ethereum he would say zero knowledge proofs in fact I Loosely paraphrased a a quote from from vitalik hopefully not incorrectly so let's talk a little bit about the tokenization of Securities this is something that a lot of people in the space are talking about we're talking about here stocks bonds derivatives other registered Securities the challenges there are not just technical not just economic but also legal Regulatory and compliance let's talk a little bit about that I imagine that one of the things that you face when you walk into large Banks and large financial institutions uh his folks there go uh this makes me a little nervous I hear about all these lawsuits uh Ripple and SEC uh for example and people are concerned about that obviously it's a risk-averse culture in financial services for the most part particularly in the uh back office component of it but let's talk a little bit about where you think we are right now current state of play with regard to Legal Regulatory and compliance aspect of tokenization of securities fascinated question is very very tough to say because a lot of the outcome for regulation will take place behind closed doors in Washington DC uh I could speak to current regulation globally so there's areas of the world that are more I would say forward leaning into the technology they want to attract Builders and developers and crypto or blockchain ecosystems to their geography and so they're really framing their focus is a very loose focus in terms of Regulation or they're framing it in terms of how do we provide guide rails to this burgeoning industry and therefore attract this talent and these builders in the U.S it's a little bit different there is heated conjecture and it's become a political issue that I you know should not or will not get into um but it's important to understand that I think what's happening now is fully compliant and Falls well within the framework of the existing regulations if you think of the idea that a Franklin Templeton tokenizes the money market fund they do not do that without speaking to The Regulators on a very very frequent basis because they they cannot jeopardize the balance of their business to be too blockchain forward if you think of the idea that securitize the company that tokenized the Hamilton Lane fund on polygon recently Securities spent years getting the licenses in place for them to do what they do which is a highly compliant and regulator friendly solution so what's happening now and the things you know call it the announcements that you'll see in the next three to six months those are very compliant Solutions under the current regulatory framework what happens beyond that it's a little bit tougher for me to see or even speak to maybe Rebecca Reddick our chief policy officer would be a better one for that oh we'd love to have her on also a secure uh securitize I believe also did the KKR uh fund that was just again not a polygon on uh but you know so much to talk about here unfortunately you you talk about this idea of other geographies attempting to attract this type of business unfortunately the United States does not seem to be one of them at the moment for those of us living here we appear to be a bit of a laggard uh one of the points that we should talk about here is Mika or Micah depending on how you pronounce it markets and crypto assets act has moved forward in Europe what are your thoughts about the European space right now and what are you guys doing to tap that so polygon is a global organization I'm personally in favor of things that set very clear well-known and understand Frameworks and rules and I think Mika is one of those so that to me is a step in the right direction I think that there's a handful of different geographies that will be coming out with similar profiles but as long as you can get to the idea that okay here's what you can do and here's what you can't do I think that allows the industry as a whole to move forward because then everybody is playing by the same set of rules and the rules or no yeah it's such a good point I've heard this time and time again by folks in the space who say we want to be good actors give us the guardrails tell us what we can do tell us what we can do we'd love to abide by the rules there just aren't clear rules in place today here in the United States it's tough because coinbase really built their business on being extraordinarily compliant and friendly towards regulation and quite frankly I think they're being punished for right now and then I think it's super unfortunate uh you know Anchorage in terms of a custodian kind of had the same approach and in my mind that actually really it really backfired uh in terms of what what really should be happening because I think what you want if you are a regulator is to encourage people uh to come to you and have that open dialogue and work within your Frameworks yeah I should ask you this question state of play more broadly in the industry right now what are your thoughts how do you think uh the the industry is doing how do we think you're doing in the United States uh and elsewhere what's your overall sort of health check on the industry you know I I said it's not for the easiest time obviously we should say for those who are not following closely yeah I come from The View uh from my perspective my seed as as the head of institutional capital I hate to say it but it's almost like things have never been better because adoption's happening like it's happening at a thousand miles an hour in the background the challenge that you see if you think about the idea that you know again Franklin Templeton announced two weeks ago and probably most people 99.9 percent of people in the US had no idea that that this was about to occur these are highly regulated organizations they can't share their roadmap you know how they're thinking about things until they're really ready until until they're fully compliant I'll tell you from my seat there's a lot happening in the background and and you're going to be able to see that uh in a public format in the coming months um there's going to be you know I I say it too frequently but announcement after announcement after announcement that's going to let everybody know okay this is happening the reason why it's happening is because if you if you really think about the technology as an infrastructure it's just so much better in so many ways for these large large players there's billions and billions of dollars on the line so that's why you're going to continue to see adoption yeah it's so interesting because that's generally not reflected in the overall price action of Bitcoin and ethereum uh what's happening in the background is this just sort of a a temporal disconnect how do you think about that at some point there will be convergence at some point there will be enough on-chain usage to validate certain uh how do I want to put it if you think about the idea that validators of the polygon Network receive tokens as compensation for securing our Network at some point the on-chain usage and the revenues paid to the network because of that usage become very compelling and so that naturally just by virtue of the math behind that will create convergence as usage increases everything else will follow organically talk a little bit about the tokenomics of the token how it works uh how the payments get made and uh a little bit about how volume impacts that so just like with ethereum every time a transaction occurs on the network a gas fee is paid to those that are validating and securing the network that's that's part of the whole concept as to why the blockchain is so powerful all the people that contribute to a network are rewarded in the tokens of the network and there for the first time you really have full alignment and I would love to get even deeper I mean it goes back to the idea of like if you have a social network it's no longer one side acting at the expense of another side if I contribute like my like or my social post and I'm actually rewarded in tokens of that of that social network we're now all of a sudden on the same playing field as opposed to kind of one side reaping the vast majority of the wards for the network uh at the expense of the people that are users of the network um Colin I I know we could talk here for another uh two hours if we had the time but I want you to get your final thoughts key takeaways for our viewers and listeners from this conversation uh final thoughts at the institutional level adoption is happening really quickly and and that goes back to the idea that this is an infrastructure it's a technology platform that is an order of magnitude greater solution than the prior solution and therefore there is deep deep incentives uh through all of Finance in fact all of the Global Financial infrastructure to adopt the blockchain technology uh so for my seat I I almost hate to say to Ash but but times have never been better I am incredibly optimistic on the space um and with with deep apologies to to people that have kind of been hurt by recent events and the speculation that's that's happened and occurred and will continue to occur uh but as a technology this is truly uh a groundbreaking technology that I that I think is going to have tremendous impact on just about every aspect of our lives in the coming months and years well it's exciting to have you on Colin because you are so optimistic about the infrastructure notwithstanding short-term price duration or even longer term price gyration I think this is very important technology and it's great to have you on uh to talk about that and talk about the bridges between uh the decentralized architecture that we're working toward uh and the sort of generic Financial infrastructure that's existed in the background for many decades uh Colin thank you so much for joining us really enjoyed this conversation thanks so much for having me on the show Ash it's been a pleasure that's it for today remember to sign up for real Vision crypto it's free go to realvision.com forward slash crypto that's realvision.com forward slash crypto we'll be back again tomorrow with Ken Arad from solidust Labs make sure to join us live then see you at 9am Pacific noon Eastern Time 5 p.m in London thanks for watching everybody have a great afternoon [Music] today's episode is sponsored by origin ether earn elevated yield in your ethereum directly into your crypto wallet deposit ether for oeast or deposit liquid staking derivatives to boost your ethereum yields now head to realvision.com oeath now to learn more

Channel: Real Vision Crypto

Views: 2,498

Keywords: Crypto Investing, Real Vision Crypto, BTC, Crypto, Ethereum, Bitcoin, Blockchain, Digital Assets, Alt Coins, Crypto Asset, Crypto Adoption, Altcoins, Decentralized Finance, DeFi, raoul pal, real vision, web3, ETH, crypto crash, crypto regulation, ash bennington, jay janer, crypto hedge fund, crypto analysis, ethereum classic, paul guerra, elaine ly, laura shin, cryptopians, crypto craze, eth analysis, ethereum merge, eth 2.0, bitcoin proof of work, proof of stake, defi hack

Id: yjK1HanZ1-Q

Length: 32min 3sec (1923 seconds)

Published: Thu May 18 2023